Nodal marginal pricing: Analysis of transmission revenue

Some competitive power markets use marginal spot prices to assess energy transactions and to pay transmission service. The transmission revenue caused by network constraints under nodal marginal pricing is equal to network investment costs in ideal systems. However, in actual systems, marginal revenue is lower than network investment costs and complementary expansion charges should be paid by market agents. In this work, transmission utility cost recovery in ideal and actual systems is analyzed. It is mathematically proved why network revenue is not enough to cover investment costs, using a special logarithmic function to represent investment costs of actual systems as a function of network capacity.